Innovations in Philanthropy: New and Old Foundations Learning from Each other with Place-Based Giving and Place-Based Investing

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Introduction

Much of organized philanthropy—the world of private foundations set up to support nonprofit endeavors—is beginning to adopt collaborative, community-based models of action that were pioneered by foundations who give where they live. Many of today’s philanthropic leaders are seeking change strategies that go beyond bestowing grant monies from a comfortable distance. Some are looking to long-standing, place-based foundations for solutions. At the same time, those place-based foundations that want their investments to align with their missions often encounter barriers to investing locally. Faced with such obstacles, some forward-thinking foundations and their advisors may be developing some answers.

Introduction

Much of organized philanthropy—the world of private foundations set up to support nonprofit endeavors—is beginning to adopt collaborative, community-based models of action that were pioneered by foundations who give where they live. Many of today’s philanthropic leaders are seeking change strategies that go beyond bestowing grant monies from a comfortable distance. Some are looking to long-standing, place-based foundations for solutions. At the same time, those place-based foundations that want their investments to align with their missions often encounter barriers to investing locally. Faced with such obstacles, some forward-thinking foundations and their advisors may be developing some answers.

Place-Based Giving

Place-based giving—philanthropy focused on a specific area—has been around as long as donors have been meeting needs in their home communities. As philanthropy has evolved, many foundations have started seeking relationships with stakeholders instead of making grants as a series of arms-length transactions, and “place-based” has started to invoke a more fundamental concept. The term suggests not only geography, but also place as an organizing principle: history, people, culture, assets, capacity and community spirit, all engaged with an eye toward long-term well-being and mutually trusting relationships. Support may flow through issue-based programs in environment, education, social justice, or other areas, but characteristics of place are primary concerns, influencing strategy as well as operations.

For donors like the William Penn Foundation (WPF), a “place-based” label may seem odd. William Penn Foundation has supported the Greater Philadelphia region (including southern New Jersey) since 1946. While original programming has expanded to include children, environment, arts and culture, a regional focus remains intact. As Brent Thompson, the Foundation’s Director of Communication sees it, describing WPF’s commitment to place “is like describing what it’s like to be an only child. It’s always been that way, so it’s what we know.”

Some approaches that come naturally to foundations like WPF represent major shifts in thinking for other funders: convening community members, grassroots organizations and civic leaders; working across program areas; becoming involved in civic life; and stepping out as advocates for sound policy. While these activities carry some risks, they’re central to the role of being a change agent in a local community. The Samuel S. Fels Fund has worked in Philadelphia since the 1930s. Executive Director Helen Cunningham says, “Some of the best grants we’ve made have been for policy change. If you’re doing grants for hunger and homelessness, that’s one thing; if you’re also supporting a living wage campaign, and advocating for sick leave for contract workers, that’s another. We could never make a grant that could pay security guards or taxi drivers for sick days, but if we can change a policy and give that to them, our money goes much further.”

Brent Thompson believes WPF’s deep community roots allow it to go beyond just reacting to needs piecemeal. “Two things work together: discrete geography, and a long period of time. They make it a unique funding experience. You can see trends, continuity, what has and hasn’t worked; and you can change course, or make adjustments. We’re here in the community, we’re part of it. We’re vested in a way other funders might not be.”

What about place-based giving for foundations that are relatively new to a community?

The Russell Family Foundation (TRFF) in Washington State has found that embarking on a new practice of focused local involvement can be complex. The Foundation started its work in 1999, when George and Jane Russell sold their global investment services firm, the Frank Russell Company. Environmental sustainability was an original interest area, focused on the waters of the Puget Sound. For several years, grants ranged from environmental education to green building, and reached as far north as British Columbia.

According to Environmental Sustainability Program Manager Scott Miller, “When I joined the Foundation we talked to a lot of people, concluded that polluted runoff is the biggest problem, and that the fix is changing the human footprint. We heard repeatedly that doing so is a local game—the work has to take place at the watershed level, or smaller.” Responding, TRFF developed a place-based strategy centering on the Puyallup River, which empties into Puget Sound.

Although the Russells were well-known civic leaders, there was still some perception that the foundation was “coming in from the outside with money.” “You have to prove you don’t have a ‘locked and loaded’ agenda,” Miller said. “People wonder, ‘What are you folks after?’ For example, if we want to focus on farmland preservation, which impacts water quality, we have to show farmers we have some values but not an agenda.”

The timeframe needed to understand community needs and develop trust came as a surprise. The Russell Family Foundation had envisioned making one- to three-year grants. After researching efforts such as the William Penn Foundation’s water resource work, and getting advice from other colleagues, they instead made a ten-year commitment.

Miller believes the place-based environmental work has begun to shift TRFF’s strategy as a whole. “The new structure has posed questions for all our programs. What is our relationship to place? How can our programs be better integrated to support community leadership development? How can we boost our own team’s collaboration? We need to explore this internally, and can also learn a huge amount from other place-based foundations.”

Place-based impact investing

As both long-standing and newer place-based funders seek more integrative, innovative strategies, they are looking toward “impact investing.” Mission related investments (MRIs) and program related investments (PRIs) deploy foundation capital with objectives that differ from the risk/return parameters used by traditional financial advisors. According to Craig Muska, Director of Investments for Threshold Group, which serves as financial advisor for The Russell Family Foundation and some 50 other clients’ personal and foundation assets, “The traditional two-step approach is to make as much money as you can, and then give it away. The new way is to use your capital more cohesively as a social entrepreneur.”

This approach has become more common as foundations face a conundrum of values: their assets are sometimes invested in enterprises that may actually contribute to environmental and social ills the foundation is trying to solve. Mission-related investments are thoroughly evaluated for alignment with a foundation’s goals. Program-related investments push even further to connect investments and goals by providing capital in direct relationship to programs and grantees. Some PRIs are made directly through grant programs.

Threshold Group and The Russell Family Foundation have crafted an unusual partnership to push the boundaries of what’s possible in PRIs. Typically, a foundation’s investment advisors and program staff would never hear each other’s names, much less meet. In the Threshold/TRFF relationship, a committee of staff from both organizations meets once a month to talk about programmatic focus in the context of investment markets. Together, they’ll develop PRIs over the next three to five years.

This type of collaboration requires everyone involved to enter new territory. “There’s a huge amount of resistance from investment advisors,” Muska explained. “Consultants are accustomed to maximizing return, and they don’t want to evaluate or support investments that might not easily fit that frame. On the programmatic side, there’s a lack of trust and knowledge on how to communicate with investment consultants.”

The Foundation’s place-based focus has challenged Threshold Group to identify local investments, conduct due diligence and monitor returns in ways that spread risk and share cost—two pillars of the investment world. “The more you localize, the more complicated it will be,” said Muska. “There are fewer options available. Finding and structuring the investments is a different process. You come up with different ‘boxes to check,’ look differently at what you’re evaluating.” Muska contrasts his approach with a traditional mindset: “The first thing I do with a new foundation client now is look at grants they’re making, even before I look at where their money is invested. That shows how they think and what they’re interests are.”

Threshold Group and TRFF plan to bring local environmental foundations together, looking at ways to share the costs of due diligence among a wider group. They’re also planning an educational event for foundations, outside law firms, investment and other advisors. By sharing their experience, they hope barriers to PRIs will become lower for place-based foundations. “Impact investing is joining the mainstream of investment advisory services,” said Muska. “Ironically, what I hear from colleagues is it’s our clients who are pushing advisors to come up with strategies to do it without sacrificing return. Our investment advisory industry needs to advance the discipline, and I can’t think of anything more inspiring than seeing us able to satisfy our visionary clients.”

Note: Threshold Group is a registered investment advisor

Keneta Anderson is a freelance writer who specializes in the world of philanthropic family foundations.